Gold prices are experiencing downward pressure due to the escalating conflict between the United States and Iran. Renewed strikes and tensions, particularly concerning the Strait of Hormuz, have caused crude oil prices to surge, with Brent crude rising nearly 16% to around $88 per barrel and WTI climbing above $82. This increase in energy costs is reigniting inflation fears and, consequently, leading to higher Treasury yields and a stronger US dollar.
Traditionally considered a safe haven, gold is not benefiting from the geopolitical uncertainty as investors are more focused on the inflationary impact of surging oil prices. Futures markets are now indicating approximately a 58% probability of another Federal Reserve interest rate increase by September. A stronger dollar makes gold more expensive for international buyers, further contributing to its decline. Gold dropped below the psychologically significant $4,000 level during the week before a modest recovery, having lost around 2.6% over the week.
Global funds saw approximately $8.9 billion in net outflows during June, with North American investors accounting for the majority of the selling in gold-backed ETFs. This indicates a shift in investor focus away from traditional safe-haven demand toward concerns about inflation. Central banks, however, continue to be buyers, with World Gold Council data showing they purchased a net 41 tonnes in May, and China extended its gold-buying streak by adding nearly 15 tonnes in June. Analysts suggest that gold could see further lows if upcoming employment data remains strong, supporting the Federal Reserve's "higher-for-longer" interest rate stance.
